NEW YORK - Thousands of New York City apartment renters on Thursday won a major court victory that could help them keep lower rents, but may drive landlords into foreclosure and crater city tax revenues.
New York state's top court ruled that the owners of a huge Manhattan apartment complex, Stuyvesant Town and Peter Cooper Village, could not raise regulated rents to higher free market rates because the landlords are getting tax abatements.
The Court of Appeals gave thousands of Stuyvesant Town and Peter Cooper Village tenants -- and as many as 100,000 other renters around the city -- the comfort that the rest of us enjoy ... the right of renewal on the same terms and conditions of the previous lease, said Alexander Schmidt, the lawyer who sued on behalf of nine tenants in the East Side complex.
The court decision's consequences for the city's coffers, other apartment owners who also get tax abatements, banks and investors, could be grim if the trial court the case goes back to rules Thursday's decision should be retroactive.
I think this is going to put a further hole in the city's budget and I think that some of the politicians who are quite happy about this decision -- at a certain point, it will dawn on them that the loss of real estate taxes is the loss of tax dollars for other programs that they want to push through, said Jeffrey Turkel, a lawyer with Rosenberg & Estis, who specializes in rent regulations.
New York City relies heavily on real estate taxes and if landlords get less income from their tenants, their property values will fall, shrinking the tax base. Banks' tax payments, another major source of city revenue, also might shrink.
LANDLORDS FACE DEFAULT RISK
A number of other city landlords, big and small, also took out loans based partly on switching regulated apartments to higher, unregulated rents, noted Manus Clancy, an analyst with Trepp LLC, which tracks commercial mortgage data.
The list includes, for example, the Riverton, a 12-building apartment complex in Harlem.
This increases the risk that these landlords will default on their mortgages or file for bankruptcy, which could gash bank profits. This would smack New York City particularly hard because the financial industry is such a major taxpayer.
Mayor Michael Bloomberg, an independent running for a third term who must close multibillion-dollar budget gaps over the next few years, did not address the possible tax loss in a statement.
Saying it will take time to assess the ruling, which does preserve more regulated apartments, Bloomberg touted his plan to build 165,000 affordable units, saying this will give tenants protections that go beyond rent regulation laws and maintain affordability, based on New Yorkers' incomes.
Mitchell Posilkin, the counsel for the Rent Stabilization Association, said the court's decision could force many landlords to repay tenants whose rents were wrongly raised.
He said there are thousands of buildings with thousands of apartments that were deregulated in past years, all with the approval of state and city agencies. These landlords now might owe tenants considerable sums for wrongly raising their rents.
The Court of Appeals has now ruled these were done unlawfully, which means there is the potential for significant overcharge liability, said Posilkin, whose association represents 25,000 property owners and agents. The impact is a very severe one for the entire real estate industry.
Stuyvesant Town and Peter Cooper Village tenants sought $200 million in overcharges from the joint venture owners -- Tishman Speyer Properties, L.P. and asset manager BlackRock Inc's (BLK.N). But the lower court could treble that amount.
Still, Turkel said tenants could face an uphill battle if, for example, they had not asked for market rent increases to be set aside within set time limits -- 35 days initially and then 60 days for an appeal. Further, a four-year statute of limitations applies on overcharges. These kinds of issues might lead to more lawsuits, he added. (Additional reporting by Ilaina Jonas) (Reporting by Joan Gralla; Editing by Andrew Hay and Jan Paschal)